Effect of discount contract tenders

The introduction of individual contracts in the area of pharmaceuticals enabled the statutory health insurance companies to carry out further structural development, so that the significant savings potential, particularly in the generics market, could be leveraged. Since 2003, health insurance companies have had the option of concluding discount agreements with drug manufacturers. With the legal changes to the GKV-WSG, these contracts have been able to take effect since 2007, since since then pharmacists have also been obliged to sell discounted products unless the prescribing doctor has ruled out substitution.

>> The use of discount contracts in the pharmaceutical market has meant that the prices for generic medicines, which up until 2006 were high compared to Europe, could be appropriately reduced through the widespread use of individual contracts. From an economic perspective, the intention of a health insurance company to offer such selective contracts is an original and legitimate instrument according to SGB V and leads to competition in the market. In addition to the possibility of achieving more balanced prices for generic medicines through discount contract competition - measured against a price level that is high in international comparison - discount contracts also lead to greater prescription stability in the supply of medicines. During the term of a discount contract, there are generally fewer medication changes in the relevant patient groups than before and it can be expected that these fewer changes will directly lead to better patient adherence to their medication therapy.
If, on the one hand, contract competition ensures prices that are more appropriate compared to international standards while at the same time positively influencing patient adherence, manufacturers have shown that medium-sized pharmaceutical companies are more likely to have the opportunity to conclude discount contracts with statutory health insurance companies and thus increase their market share. The oligopoly of the largest suppliers that prevailed until 2006 was broken up by the discount agreements and market concentration has decreased. New providers gain broader market access through contract competition. The discount agreements therefore represent a benefit for both drug patients, statutory health insurance companies and the numerous competitors in the generic market.
Legal basis
Since the beginning of the new millennium, both health insurance companies and manufacturers have increasingly proposed contractual competition models in discussions on drug supply. These are comparatively easy to implement within the generic market segment. In order to enable effective contractual competition, the obligation to contract at product level - i.e. the legal obligation of health insurance companies to reimburse their insured persons for all approved prescription drugs in a market segment - must fundamentally be abolished within a still uniform catalog of services. The health insurance companies are then no longer forced to reimburse all preparations for generic active ingredients and can instead conclude contracts with individual manufacturers who offer them particularly favorable conditions. This allows real price competition to be initiated even below the fixed amounts that represent the upper price limits for reimbursement. The collective agreement path is being abandoned and more competitive elements are being introduced into the statutory health insurance system.
Since 2003, health insurance companies have had the opportunity to conclude fund-specific discount contracts with manufacturers under Section 130a Paragraph 8 SGB V. With the law to improve the cost-effectiveness of drug supply (AVWG), which came into force on May 1, 2006, the regulations were expanded so that service providers such as doctors could be involved. Nevertheless, the health insurance companies had little influence on the sales volume unless they financially contributed to doctors or pharmacists and thus promoted the prescription and distribution of the discounted products.
With the GKV Competition Strengthening Act (GKV-WSG), which came into force on April 1, 2007, the possibilities for contractual competition in the area of pharmaceutical supply were introduced or improved: pharmacies were obliged to implement health insurance-specific discount contracts in accordance with Section 129 Paragraph 1 Sentence 3 SGB V should be observed and discounted medicines should be given priority unless the prescribing doctor has ruled out substitution. The health insurance companies provide the pharmacies with relevant information about the discounted products. Further design options for the health insurance fund are that it can halve or eliminate the patient's co-payment for discounted products and - already introduced with the AVWG - can also conclude discount contracts to cover the full costs for products whose prices are above the fixed amount if the discount compensates for the costs exceeding the fixed amount.
The core goal of the new contract competition was to reduce health insurance companies' spending on medicines. Now that the legislature has established the possibility of choosing individual contracts, it is clear that the contracts of health insurance companies, pharmaceutical manufacturers and patients are increasingly bringing benefits. After a large number of procurement, social and civil law decisions and through the GKV Organizational Development Act (GKV-OrgWG), the legal certainty surrounding discount contracts has improved significantly. Recently, the discussion about discount agreements has increasingly focused on the topic of interchangeability between products with the same active ingredients in terms of indications and pack sizes.
With the Pharmaceutical Market Reorganization Act (AMNOG) the legal framework for discount contracts was readjusted again in 2011. The positive thing here is that questions regarding the interchangeability of indications and pack size have been clarified, so that since 2011 it has been made clear that drugs with the same active ingredients, the same potency and dosage form are considered interchangeable if they have a common indication and the same standard pack size.
With the 14th SGB V Amendment Act, the Federal Joint Committee was given the authority in 2014 to create a list that stipulates for individual active ingredients that no substitution of the prescribed preparation should take place, for example within the framework of discount agreements. This eliminates the effects of discount agreements for the affected active ingredients. It remains to be seen to what extent this will result in fewer product changes and, on the other hand, whether there will be a concentration on one or a few providers in the future.
Discount market situation until 2013
With the legal regulations, a further attempt was made to tap the economic potential in the generic market through competition between products with the same active ingredients. In the 2013 prescription year, there were an average of 4.4 different drugs (standard aggregates) and an average of 27.9 different individual products (pharmaceutical central numbers) out of a total of 2,433 prescribed active ingredients and combinations of active ingredients. For individual active ingredients, such as olanzapine, over 1,000 different products were offered in 2013 and prescribed across the statutory health insurance system. All health insurance companies have implemented the legal options for selective contractual regulation of drug supply since 2007. They used various strategies for drafting contracts in the generics market (Heltweg et al. 2010):
• Portfolio contracts in which contracts with flat-rate discount rates are concluded with manufacturers for their entire or a partial range of active ingredients/combinations of active ingredients. This type of contract had to be terminated on April 30, 2013 in accordance with the 16th AMG amendment.
• Open-house contracts in which health insurance companies set minimum discount rates for defined active ingredients and which manufacturers can join if they meet these minimum standards. After the termination of the portfolio contracts, some health insurance companies increasingly chose this comparatively low-cost way of drafting contracts.
• Active ingredient contracts in which active ingredients/active ingredient combinations are advertised across Europe and one or more manufacturers receive the exclusive contract. This model was first implemented by the AOKs and is increasingly being implemented by other health insurance companies.

The aut idem regulation, which has been anchored in Section 129 SGB V since 2002 by the Drug Expenditure Limitation Act, which states that one of the three cheapest substitutable drugs should be given preference, has not been implemented across the board. Even when the Contribution Rate Guarantee Act created the opportunity for health insurance companies to conclude discount contracts in 2003, these initially could not be consistently enforced. As before, the drugs prescribed by name were predominantly dispensed, although cheaper generic products were available on the market. This makes the price differences for preparations with the active ingredient omeprazole clear in 2006: A total of 39 different products (omeprazole 20 mg, 30 gastro-resistant tablets) were offered on the market with prices between 22.67 and 42.08 euros (see Fig. 1). The share of prescriptions for the four cheapest products was 2.7 percent in 2006. The annual savings calculations presented in the drug prescription report determine the national savings potential for generics in accordance with the “gold standard” (Pfannkuche et al. 2007, Schröder 2008, Pfannkuche et al. 2009). Within each generic active ingredient, the cheapest substitution candidates are searched for using the DDD net costs, separately according to the packs prescribed during the observation period, which have a comparable potency, pack size and dosage form. In order to ensure sufficient market availability, the substitution candidate must have a prescription quantity of more than 10,000 prescriptions in the corresponding prescription year. The calculation of the savings potential for 2006 came to 1,322.7 million euros (Schwabe and Paffrath 2007). The total sales at that time of 23.7 billion euros could have been reduced by 5.6 percent - without losses in drug therapy - if a strict supply of the cheapest comparable drug with sufficient market coverage had been implemented. However, reality has shown that this high savings potential could only be achieved when the legal instruments made this possible with the mandatory supply of low-cost medicines within the framework of selective contracts from 2007.
After the start of the AOK tender for generic active ingredients at the end of 2006 with the start of the contract on January 1, 2007, the health insurance companies have now concluded discount contracts in different designs. While in July 2007 a total of 172 health insurance companies had concluded discount contracts with 53 manufacturers for 17,997 discount products, these numbers had increased significantly by December 2012: all health insurance companies had a total of 34,879 discount products under contract at the end of 2012 (Fig. 2). At the end of April 2013, the provisions of the 16th AMG amendment made the contracts that had not been advertised publicly invalid, which subsequently led to parts of the contracts that had existed up to that point, in particular portfolio contracts, being terminated. The number of discount products under contract fell to 16,406 in May 2013. As the year progressed, the number remained at around this level.
This means that almost every second medicine prescribed in 2012 had at least one discount agreement; at the end of 2013, this still applied to around 27%.
The market performance of discount medicines in the generic market was already evident in December 2007 with an impressive share of 36 % in prescriptions and 29 % in sales. The market penetration of the AOK discount agreements in discount waves one to eleven also demonstrates the clear market effectiveness of this instrument (Fig. 3).
With regard to the financial effects, the health insurance companies have had their own budget account in the official statistics since mid-2008 (KJ 1, since 2010 also in KV 45), in which the income from discount contracts is shown. For the year 2008, a discount amount of 310 million euros was booked for the first time in the second half of 2008. For the entire year 2012, the GKV discount amount is 2.37 billion euros (2011: 1.72 billion euros, according to official statistics CY 1). In 2013 it rose to 2.85 billion euros (according to official statistics KV 45) and thus corresponds to 9.3 % of pharmaceutical expenditure (see Fig. 4). It is also clear that this selective contractual field initiated by the legislature is used most heavily by the AOK. The AOK started early and is now in a routine process with the award of the contract for the 13th AOK tranche. The discount revenues achieved make it clear that there is still appropriate scope for discounts in the manufacturers' price calculations. In addition to checking hospital bills, discount agreements with pharmaceutical companies represent the most important tool for reducing costs for statutory health insurance companies (Sachversicherenrat 2012). The negotiated discounts - especially for generic medicines - enable statutory health insurance companies to mitigate the increasing pharmaceutical expenditure caused by volume expansion and the trend towards high-priced medicines that has been observed for years.
The market share of generic products in the generic market has been increasing for years and in 2012 reached a prescription share of 86.8 % and a sales share of 72.3 %. An international comparison between five European countries showed that Germany already had the highest share of generics in the overall market in 1996/97. According to current comparative studies on the generic market segment, Germany continues to be a leader in prescribed volumes, but the drugs are offered significantly cheaper in countries such as France, Great Britain, the Netherlands, Finland, Sweden and Spain. Although Germany achieves high generic quotas, the price differences for generic products in a country comparison make it clear that Germany can be considered a high-price country - if the discounts agreed between manufacturers and statutory health insurance companies are not taken into account: In comparison to Germany (100 %), the sales-weighted price index is 204 high-sales Generic-capable active ingredients and combinations of active ingredients at manufacturer retail prices in the Netherlands at 85 %, in Denmark at 87 % and in Great Britain even only at 71% (Santésuisse 2012). The study shows a higher price index for France, Austria and Switzerland than in Germany.
Discount agreements lead to higher prescription
stability
In addition to the opportunity to generate savings through discount revenues, which relieve the financial burden on the respective health insurance companies, discount contracts also lead to greater prescription stability in drug supply. An analysis of the AOK discount contracts by the WIdO shows that fewer drug changes took place during the two-year contract period of the active ingredient contracts than without a discount contract (WIdO 2011). For this purpose, 32 million active ingredient-related patient profiles of 58 long-term generic active ingredients were examined. While in 2006 - before the start of the discount contracts - only 70 % of patients had always received the same drug with the respective active ingredient throughout the entire year, this proportion was significantly higher in 2010 at 79 %. The argument often expressed by discount critics that discount contracts would lead to more changes is therefore refuted for AOK's active ingredient contracts. It is to be expected that a less frequent change will contribute to patient adherence to therapy. If patients treated with long-term medication are asked about the reason for switching medications, discount agreements are just one of many reasons. This was shown in a survey of AOK Baden-Württemberg policyholders in 2010, in which it also became clear that more than half of those surveyed generally viewed discount contracts positively (Hermann and Wienands 2010). In a nationwide survey of AOK policyholders on discount contracts in 2009, more than 75% answered that they had no problems with switching to discount medicines and even more (86.9%) said that in principle it did not matter which manufacturer the medicine they received came from (WIdO 2009 ). Ultimately, a recent analysis of prescription data showed that only in a few exceptional cases were indirect indications of problems associated with a change in medication found. As a rule, however, these problems are not clinically relevant and can in most cases be resolved, for example through improved communication (Höer et al. 2014).
In its response to a query from the Left Party about the influence of discount agreements on the availability of vaccines and other medicines, the federal government sees no need for action to restrict discount agreements (Bundestag printed matter 18/753 2014). The reasons for temporary delivery bottlenecks are heterogeneous and it is not apparent that discount agreements have led to serious changes in the market structure among pharmaceutical manufacturers. Rather, when concluding discount agreements, security of supply must be guaranteed by agreeing on measures to combat delivery bottlenecks.
Pharmaceutical manufacturers
The impact of the discount agreements on the oligopoly-like dominance of the leading generics companies can be examined by analyzing the market concentration in 2006 and 2013.
In 2013, the pharmaceutical industry achieved sales of 31.5 billion euros in the German GKV finished pharmaceuticals market (2006: 23.7 billion euros). These medicines were prescribed by around 140,000 contracted doctors and 60,000 dentists to almost 70 million people insured by statutory health insurance and were dispensed in almost 21,000 public pharmacies at the expense of the 134 statutory health insurance companies (2006: 242 statutory health insurance companies). In total, 398 manufacturers were involved in this in 2013, each with GKV finished drug sales of more than 100,000 euros (2006: 381 manufacturers). The distribution curves for the overall market and especially separately for the pharmaceutical providers in the generic market segment make it clear that market concentration decreased between 2006 and 2013 (Figs. 5 and 6).
In order to examine the market concentration of manufacturers in the overall market and in the generic market, it makes sense to look at each of these market segments completely: The development since 2007 shows that as of January 1st, a total of around 2,500 active ingredients/combinations of active ingredients were prescribed (according to ATC). There was an actual generic competition at around 1,000 each. Discount agreements existed for approximately 2/3 of these active ingredients as of January 1st (Fig. 7). A restriction to a content-based selection of active ingredients with the highest sales or prescriptions as part of a market analysis must therefore be carefully considered. The approach of looking at manufacturer concentration in the entire generics-capable market reflects the situation in the generics-capable market most comprehensively and also takes into account discount agreements for active ingredients with low market shares overall.
The key parameters undoubtedly demonstrate the competition-promoting and SME-friendly effect of pharmaceutical discount agreements (Table 1). In this analysis, either the entire pharmaceutical market or only the generic market segment is analyzed. The Herfindahl-Hirschman Index (HHI) shows that the market concentration of the almost 300 manufacturers with at least one prescription of a generic drug at the expense of the GKV has a low overall market concentration and that this decreased slightly between 2006 and 2013. This analysis assumes that generic drug providers have the opportunity to operate as a provider of any drug in the patent-free market with appropriate investments. This is supported by the observation that no time-consuming or costly investments are required, for example with our own production facilities for active ingredients, etc.: an average of 5 million euros with two years of development time must be spent on developing a generic drug until it is ready for the market (Bretthauer 2014). But the investment rate in the pharmaceutical industry also fell significantly more sharply between 1998 and 2011 compared to the manufacturing industry in Germany, for example (Niedersächsisches Institut für Wirtschaftsforschung 2013). While 20 years ago 80 percent of all active ingredients were manufactured in Europe, today it is estimated that 80 percent of active ingredients come from India or China and that all production is now being outsourced to other countries (German Pharmaceutical Society and Central Laboratory of German Pharmacists 2011). Generic providers in the German market therefore have the opportunity to flexibly change their market range with comparatively little effort and make active use of this: Examining the active ingredient ranges of the approximately 200 market-relevant providers in the generic market in 2012 and 2013 shows that on average Over 20 percent of the active ingredient ranges were changed within this time. This makes it clear that this is a highly dynamic market.
An alternative approach focuses on the supplier structure and their sales shares in the submarkets of the individual active ingredients/combinations of active ingredients (Albrecht and de Millas 2014). If one were to calculate the Herfindahl-Hirschman index at the active ingredient level using this alternative approach - for the active ingredients that were patent-free in both 2006 and 2013 with at least one regulation at the expense of the statutory health insurance - it would be shown that half of these approximately 550 were patent-free in 2006 and 2013 The market concentration (HHI) for active ingredients/combinations of active ingredients has stagnated or even decreased between 2006 and 2013. The average number of suppliers of more than 16 manufacturers for the 50 top-selling active ingredients/active ingredient combinations in this shopping basket in 2013, for example, shows that there is a heterogeneous supplier structure. This means that a sufficient number of manufacturers are available, which will continue to enable discount contract tenders and an economical supply of generics in the future. It must be emphasized that the relevant market definition must include the entire generic market. The smaller the corresponding market segments are, the higher the market concentration will be. If the markets were made even smaller and, for example, even smaller groups were defined with identical active ingredients, identical potency, identical dosage form and identical pack size (see, for example, Fig. 1 with omeprazole 20 mg, 30 enteric-coated tablets), market concentration would increase again. This would imply that pharmaceutical suppliers can only offer a specific packaging form - rather, generic suppliers continually adapt their range of active ingredients. Both within specific active ingredient limits and beyond the specific active ingredient limits.
Conclusion
The instrument of drug discount agreements has led to an intensification of price competition, has been able to impressively reduce drug costs and has reduced market concentration in the generics market. This trend continued in 2013 compared to 2011. The oligopoly of a few large generic companies that existed until 2006 was eliminated through contract competition. Medium-sized pharmaceutical companies have realistic opportunities to increase their market shares through contract competition. At the same time, it is clear that before the introduction of drug discount agreements, drug changes were more common. Since it can be assumed that the more frequent medication changes at the time led to a decrease in adherence to therapy, which could worsen the course of therapy, the AOK discount contracts increase therapy safety and thus the quality of care by stabilizing product selection. <<